Sell Gold, Buy Stocks: Really Dumb Idea

With delusions running rampant, the investment community gave into the pressures
for conformity in June to embark on another one of their ongoing errors of
judgement. Selling Gold and buying equities became an emotionally driven
mania, void of reason. Rather than assessing rewards and risk for their clients,
the "teenage" traders running "hedge" funds again chose the wrong strategy.

Chart to the right portrays the investment results since the Great Gold Dump
of June 2013. Apparently the "teenage" traders dumped Gold at a major bottom,
which likely was the beginning of a new bull market leg for Gold. In any
event, the funds simply got it slightly backwards. Correct strategy for their
clients' money is to buy low and sell high. Over the past two year they bought
high and sold low. Maybe they will get right next year, assuming their clients
have any money left with which they can play at investment management.

While that is what happened the past few weeks, what are the opportunities
ahead? Following chart portrays the year end ratio of $Gold to the S&P
500 as well as the most recent observation. The black line is the average
of those almost 70 years of experience. When the ratio is below that average,
Gold is the under valued asset. As we write, $Gold is the most undervalued
relative to the S&P 500 that it has been in six years. And think about
that. Which would you rather own for the future?: The Facebook fantasy or
a real asset?

While many are preoccupied with Fantasy Football at this time of the year,
the investment world is focused on a bigger game: Fantasy Monetary Policy.
In this game pseudo experts attempt to select a monetary policy that will
insure prosperity and enhance the value of paper equities. With U.S. unemployment
continuing at record levels, the FOMC might be better off playing Fantasy
Tennis at their meetings.

In the next two weeks an avalanche of articles and commentaries will near
drown us in pseudo wisdom on the impact of tapering by the Federal Reserve.
Regardless of their decision, the risky asset under reduced bond buying by
the Federal Reserve is the over value asset, equities, not the under valued
one, Gold.

The asset that has been supported and experienced artificially inflated prices
is equities, not Gold. If we use the data portrayed in the previous chart
on the ratio of $Gold to the S&P 500 we can estimate relative over or
under valuation. That has been done in the chart below.

If we use the average of that ratio, an approximation of relative valuation
can be calculated. Using that ratio and assuming that Gold is correctly priced,
the S&P 500 is over valued by 30%. Alternatively, if the S&P 500
is correctly priced, Gold is under value by 40%. That situation seems reasonable
as equity values have clearly been inflated by the pseudo economic science
of the Keynesian economists running the Federal Reserve.

Investors have a simple choice. Play Fantasy Economics with the "teenage" traders
and the Federal Reserve, or own real assets. With two massive financial failures
already achieved by the Federal Reserve, do you want to bet your wealth that
they will get it right this time? When the central bank of a nation repeats
the same mistake over and over wealth insurance is a necessity.

Ned W. Schmidt,CFA has had for more than two decades a mission to save investors
from the regular financial crises created by Keynesianism, and the high priests
of that misguided ideology. He is publisher of The Value View Gold Report,
monthly, and Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com Follow
us @vvgoldreport

Ned W. Schmidt,CFA,CEBS is publisher of THE VALUE VIEW GOLD REPORT and
author of "$1,265 GOLD", published in 2003. A weekly message, TRADING
THOUGHTS, is also available to electronic subscribers. You can obtain
a copy of the last issue of THE VALUE VIEW GOLD REPORT at The
Value View Gold Report. Ned welcomes your comments and questions, and
tries to answer most all. His mission in life is to rescue investors from
the abyss of financial assets and the coming collapse of the U.S. dollar.
He can be contacted at ned@valueviewgoldreport.com